Collection Agencies That Charge a Flat Fee Can Be More Effective

Comment from Dan on May 27, 2009 at 11:12AM EST

The problem with flat fees is it brings low recovery, which in turn nets back less money to the client. Net back is the ultimate decider of success, not smoke and mirrors pricing.

Comment from Kindness4Weakness on May 27, 2009 at 11:27AM EST

Flat fee ensures that the agency makes it's unit yield BEFORE it even works the accounts. Not a benefit to the client. Clever ad though!

Comment from Anonymous on May 27, 2009 at 12:34PM EST

I believe that agencies who collect on contingency are more profession than those with a flat fee. The flat fee agency will collect income even if the debtor does not pay, it the the contingency agency that helps the customer to want to clear the delinquency and only when that is accomplished will the agency see a return.

Comment from Anonymous on May 27, 2009 at 12:36PM EST

Most flat fee agency's charge 40-50% on the back-in when not collected on the front end pre-paid letters. Some don't even report to credit bureau's so check when shopping. Some expire their letter series before you use them all and want you to re-buy more or charge you a fee to extend there usage over another six months or year. Remember pre-pay is the norm in this letter series industry of collection and there are many collection agency's biting the dust. Just look what happen to how ... filed bankruptsy a few years back and used bankruptsy to get rid of alot of the representatives who were independent and actually serviced the clients. Soon after the clients were left with no servicing and they lost big time.

Comment from Anonymous on May 27, 2009 at 5:10PM EST

We've been using a flat-fee service for a number of years and it works GREAT ! We used to work our accounts internally for far too long and it was apparent that these individuals became immune to our attempts. Once we implemented the 3rd Party these poeple, not all mind you, but a number of them called us or paid. My staff hated making the calls anyways, and now they take incoming calls for arrangements... much better. I now have them doing more productive things then chasing. I suppose the logic of working on a contingency will make the agency work harder for the money, but my experience with agencies in the past is that they creamed the top anyways and it cost me 40%! All I know is the return we have gotten without having to pay a percentage is a no-brainer. I believe there is still a time and place for the contingency agencies, but not to start with. Just my personal experience.

Comment from Michelle Dunn on May 28, 2009 at 8:09AM EST

Thanks for this article, it is very timely. I have just received some questions from my readers on how to start a flat fee based agency rather than a contingency based agency, so this is very helpful.

Comment from Anonymous on May 28, 2009 at 10:21AM EST

I have been in the Collection business for over 40 years and have seen flat fee based agencies come and go. Mostly go. If a fair comparison is made I have never seen these companies come close to competing with contingency fee agencies. Not only is the incentive not there to collect think about what these companies are doing now that the economy has reduced recovery. Are they reducing their flat fee. I am sure they are not doing so. Also, it has been years since I have seen contingency rates of 33%-50%. It is more like 18%-25% for prime first placements. The flat fee company doesn't care how long the client holds on to accounts because they still get their flat fee. In the meantime a client's badly needed cash is setting out there waiting to be collected. If I was a client I would take another look at my net back and make a comparision. I would always use a 2nd agency with a flat rate agency to compare.

Comment from Lethal on May 28, 2009 at 10:56AM EST

Flat fee ensures that the agency makes it's unit yield BEFORE it even works the accounts. Not a benefit to the client. Clever ad though! I agree with the above. Collections has always been a contingency structure and should stay that way. Now, we just need agencies to quit cutting rates...or we're all going to be out of business.

Comment from Bob Partridge on May 28, 2009 at 11:48AM EST

I have never understood how US agencies can get away with such ridiculous commission rates. I charge my clientele in the UK 15% of monies recovered and still have clients trying to knock me down, albeit unsuccessfully!

I can see how flat fees have a pace in the 40% climate!!

Comment from John Rousseau on May 28, 2009 at 12:47PM EST

I guess comments are edited as my response is not here. K & G: these responses, especially one, demonstrates the education needed for your audience to learn the business. Have any of you heard of unit cost or unit yield? If you do, do you know how to respond to the flat fee alternative?

collectionguru@gmail.com

Comment from Anonymous on May 29, 2009 at 12:26AM EST

Flat Fee agency's are a rip off after you pay the up front fee, net yeilds in todays climate are usually less than 15 % recovery as an average a few industries higher but in todays climate most addresses change every three years or less so flat fee agency's are absoulutly useless because with out good addresses they charge 50% in there phase 2 services and on small balances under 1000.00 they don't even bother doing the skip trace and credit reporting. Not all but most operate this way just ask and watch them dance around the question trying to answer it. Then again just ask how long the rep has been with the company. Unless their title is manager it's ususally less than six months and in six months they will be history. That's how managers make there client bases reps quit and they keep the good clients and burn the bad.........

Comment from Wisconsin on June 1, 2009 at 9:46AM EST

I worked with percentage-based collection based agencies for years and made the switch to flat fee about a year ago. My recovery rate more than doubled and my cost to collect was cut in half! I wish I would have switched years ago. Flat fee has been much more effective for my practice.

Comment from Mike Farrell on June 1, 2009 at 12:31PM EST

I started working with ann agency 22 years ago that marketed only flat fee services no contingency.Flat fee services are highly effective when used early in the revenue cycle and used as an extension of internal collections. In most cases they depreciate the ability to recover for the contingency agency. I was recruited back to the company I originally started with and now offer flat fee and contingency services. If sold properly both services can be effective for any business provided the person understands revenue cycle management and how to effectively employ your services to best benefit your clients.

Comment from Anonymous on June 1, 2009 at 12:45PM EST

Flat fee is, in essence, like a First Party project model. The client pays up front. Unless the client has very tight controls, accurately measured expectations/goals, and the ability/desire to be involved on a regular (if not daily) basis...the client will get a lower ROI. It's akin to paying a contractor in full before he repaves your driveway; where's the incentive do a timely or good job? On the other hand, it's a good deal for the agency, no doubt. Better have a good sales person bringing in new clients to replace those lost through attrition, though. Bottom line: Depending on volume, a $10 or $15 UY is typically going to be low. In order to make money on a flat fee, you have to cut costs elsewhere. Cutting costs means lower recovery.

Comment from Anonymous on June 2, 2009 at 7:38AM EST

Flat fee doesnt benefit client more esp for developing countries.my question is how do you assist debt collection companies that are running in developing countries to meet their targets in terms of collection?What is the most effective strategy when collecting chardge off accounts

Comment from Anonymous on June 3, 2009 at 1:30PM EST

To the June 2 question... The answer is both simple and very, very complex. 1. Must have good communication skills and a solid understanding of the customs/culture you're collecting in. 2. Must employ good negotiation discipline. 3. Must employ good penetration strategies. 4. Must employ good skiptracing stratagies. 5. Must be rigidly compliant with the laws, yet be able to discuss "consequence" appropriately. 6. Must be able to train skills 1-5 above and be able to up-train continually in order to enhance both collector and management's ability. 7. Set accurate goals, measure results, and determine root cause failures accurately when you fall short. 8. Follow up, follow up, follow up. Inspect what you expect. Smile and dial. Get the money. Good collectors start with good hires. And if you don't want to hear it on tape, don't say it.

Simple, huh?

Comment from John Rousseau on June 4, 2009 at 3:30PM EST

THINK MORE OF THESE RESPONSES SHOULD BE ANONYMOUS; ARABIC NUMERALS MAKE THE DECISION QUITE SIMPLE; UNIT COSTS,UNIT YIELDS, TRANSACTION COSTS, TRANSACTION RATIOS AND THAT'S IT FOLKS.

JOHN DREW ROUSSEAU COLLECTIONGURU@GMAIL.COM XXX-XX-0676

Comment from paybill on June 4, 2009 at 3:52PM EST

I think most agencies can offer both types of fee structures, we do. However, very few Clients choose a flat fee option and rightly so. You don't have to be an agency that has one way to price projects, if you do your missing the boat.